Autumn Statement: Triple lock maintained

Sian Steele, Head of Tax at professional services and wealth management firm Evelyn Partners, says: 

“This will be very welcome to those receiving, or about to receive, the state pension at a time of rising living costs.

“With an election on the horizon, the political consequences of tinkering with the triple lock might have figured in the Chancellor’s calculations. Whether the state pension can be increased in the same way over the long term alongside an ageing population is another question.

“With the inclusion of bonuses in the earnings element of the triple lock, many in the Treasury are probably lamenting a missed opportunity to save the public purse some extra outlay. 

“The 8.5% hike now nailed on for April means the state pension will cost the Treasury £2billion more in 2024/25 than the Office for Budget Responsibility forecast at the Spring Budget  and that comes hot on the heels of this April’s bumper 10.1% state pension hike, which added £11 billion to Government spending in 2023–24.[1]

“Adjusting down the prescribed rise for April to 7.8% – the rate of earnings growth excluding bonuses – would inevitably have attracted criticism, and might not have saved a huge amount for the public purse. But it would arguably have been quite a sensible alteration. 

“The surprise is more that successive governments have allowed bonuses to be included in the calculation, as they are volatile and something that only a small proportion of the working population benefit from – and this year’s figure was particularly distorted by a one-off NHS deal. It’s also not clear why the inflation and earnings growth elements of the triple lock are taken from one month and three months respectively, rather than longer periods that would give a more stable and accurate picture.

“Outside of an election year, this could be a relatively uncontroversial reform to the triple lock, as it’s clear that demographic and life-expectancy trends will escalate costs to the Treasury from the state pension over the coming years.

“From a tax point of view, this increase for the state pension takes it a step closer to the frozen annual personal income tax allowance, which means that a retiree will not need a great deal of private income in retirement – whether that is from a personal pension, investments or property – before they pay tax at the  basic rate of 20%.

“The new flat rate annual state pension of £11,501 in the 2024/25 tax year, is just £1,069 short of the £12,570 tax-exempt allowance as it stands in 2023/24.”

NOTES

[1] IFS responds to release of average earnings statistics which determine rise in state pension in April | Institute for Fiscal Studies